Understanding how to efficiently pass on your wealth and make plans for your wider succession arrangements is important.
Taking initial steps to ensure your assets go to the people you want them to, while keeping the amount of Inheritance Tax (IHT) payable to a minimum, is vital for protecting your wealth. It’s also important to regularly review your arrangements to ensure they continue to meet your requirements.
Although your own mortality is not an easy thing to have to think about, unexpected events can strike. Ensuring all your arrangements are correct and up to date can give you valuable peace of mind and help avoid stress and delays for your loved ones should the worst happen.
At the Annual Progress Meeting we hold with all our clients we go through a checklist of some of the key succession planning issues. This helps confirm that your plans are still fit for purpose and enables you to make any changes you feel are necessary.
Read about seven of the key items on that checklist, and why they are so important.
1. Check your will arrangements
It’s always worth reviewing your will arrangements regularly, together with those of your spouse or partner.
At a basic level, you should confirm that your will is up to date and you’re still happy with what it contains, including:
- Your intended beneficiaries
- The amounts you’re leaving to different individuals
- Who you’ve nominated as your executors.
This review process is particularly important if you’ve gone through any big life changes over the previous year, such as the birth of a child, marriage, or divorce.
We’ll also consider whether you have a separate will in place for each tax jurisdiction where you hold assets. This is often overlooked and – if you’re relying on a single will to cover all your assets – it could result in delays in your estate being settled after your death.
2. Set out guidance notes for the executors of your will
As well as reviewing your will, we’ll also look at any specific guidance you have in place for your executors.
Such notes won’t necessarily form part of your will but will be a separate note, lodged with it. These guidance notes can help your executors as they carry out your instructions.
Your guidance notes could include instructions such as:
- Gifts of certain assets you would like your executors to make that aren’t specifically in the will itself
- Instructions for them to pass on to whoever you have appointed as guardians of minor children
- Details of your desired funeral arrangements.
If you have such notes in place, we will check that you’re still comfortable with the details. Alternatively, we can help you set these out and ensure they are in order.
3. Review the nomination of beneficiaries on your pensions
The value of your pension fund will usually sit outside of your estate for IHT purposes.
But it is important to declare who any remaining funds should pass to, subject to the rules of your pension scheme.
A death benefit nomination form (or expression of wish form) allows you to tell the pension administrators who you would like the value of your pension fund to pass to. Although it’s not a legally binding document, it gives them a useful steer for their decision making.
If you’re a member of a company pension scheme and still employed at the time you pass on, your nomination form could also include a “death in service” tax-free lump sum.
Such arrangements could be especially important in the event of you being divorced or separated. Again, if you already have nomination forms in place, it’s a good opportunity to check you’re still happy with the details.
4. Assess your current Inheritance Tax liability
Even if you’ve already taken proactive steps to reduce IHT liability on your estate, you should still be reviewing the value of your assets on a regular basis.
As with the previous points you’ve read, this will particularly be the case if there have been any substantial changes in your circumstances – such as inheriting a large sum of money yourself. Some overlooked consideration may also include recording any recent gifts any reviewing any historic gifts that might be falling outside of the 7-year window.
Any such changes in your circumstances may mean that you need to review your arrangements and adjust any existing IHT plans you have in place. This could include putting some of your assets in trust or adding more of your wealth to an existing trust. Alternatively, you may want to consider making gifts to members of your family.
Failure to think about distributing your wealth while you’re still alive could result in your beneficiaries facing an unexpected IHT bill.
5. Put protection policies in trust
One simple estate planning option is to assess your total IHT liability and set up a simple life insurance policy that pays out some or even all of that amount on your death.
A key point to remember is that the policy in question (alongside any other life insurance policies for that matter) must be written in trust for that specific purpose, rather than simply be paid to your spouse or partner.
Setting up such a trust is relatively straightforward, but if it’s not done properly, it could accentuate a problem it is designed to solve. Failing to write your life insurance in trust could end up adding to the value of your estate and, as a result, increase your overall IHT liability.
6. Check any expression of wish on investment linked life policies
Our clients often hold investment linked insurance policies, also known as offshore investment bonds. One benefit of these insurance-based investments is that probate is not required in the jurisdiction that that policy is written under (often Isle of Man or Ireland). Instead, the insurance provider can be guided under their expression of wishes form as to who to pay benefit to in the event of death
As a result it is important to ensure that one of these is actually completed in the first place, and then reviewed on a regular basis
7. Provide a statement of wishes to guide trustees
If you already have assets in trust, you’ll probably be aware that, as legal documents, such trust arrangements are very difficult to amend.
However, what you can do is provide a statement of wishes that sits alongside the trust – similar to the guidance notes for the executors of your will that you read about earlier.
This is a relatively informal document that can be amended or even withdrawn at any time and can help give guidance to your trustees without having to alter the trust in question.
This could also give you the opportunity to provide more private or sensitive information to guide your trustees that you wouldn’t have included within the trust itself.
Get in touch
If you would like to discuss your estate plan or succession arrangements, please get in touch.
You can contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.
Please note
This article is for information only. Please do not act based on anything you might read in this article.
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